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The Digital Currency Revolution Is Here, and May Sweep Away 5000 Years of Monetary History There Is a Comi 6/5/2021 The future of money: The digital currency revolution is here, and may sweep away 5,000 years of monetary history - The Globe and Mail The future of money: The digital currency revolution is here, and may sweep away 5,000 years of monetary history There is a coming storm in the world of finance as governments around the world engage in a global contest to digitize their currencies MICHAEL DOYLE SPECIAL TO THE GLOBE AND MAIL PUBLISHED 2 HOURS AGO FOR SUBSCRIBERS 0 COMMENTS SHARE TEXT SIZE BOOKMARK A late 19th-century rai stone, from the Micronesian island of Yap, sits in the Bank of Canada's Ottawa office building. NATIONAL CURRENCY COLLECTION/BANK OF CANADA MUSEUM https://www.theglobeandmail.com/business/article-the-digital-currency-revolution-may-usurp-analog-money/ 1/15 6/5/2021 The future of money: The digital currency revolution is here, and may sweep away 5,000 years of monetary history - The Globe and Mail For several hundred years, the people living on the Pacific island of Yap used giant rocks as a basic form of money. The most valuable of these massive limestone rings, called rai stones, weighed several thousand kilograms. As a result, they weren’t easily exchanged when an item was bought or sold. Boulders that were too big to roll from one owner to the next were left in a permanent resting place. Over time, the community devised a way to maintain the value and ownership of each rai stone by creating a shared oral history, a public account of the ledger. Each time a stone changed hands, metaphorically, members of the community spread word of the transaction and amended their memories. Trust was implicit because everyone knew the story, rendering each transaction immutable. Over time, money transformed from an object to an idea, while the rocks sat in a forest somewhere, untouched. A 2,000-kilogram rai stone, like a towering zero, hangs over a shallow pond at the Bank of Canada’s Ottawa headquarters, part of its renovated main floor. The Yap islanders used rai stones until the 1960s (eventually relenting to U.S. dollarization), and over that time the concept of money didn’t really change much. But there is a coming storm in the world of finance. At the onset of the COVID-19 pandemic, the Bank of Canada, the country’s central economic authority, realized that physical cash, which had already been in decline for several years, was in danger of reaching a tipping point. This threat to the centrality and basic functions of the loonie, along with looming outside forces of change brought on by cryptocurrencies, big tech and potentially proliferating central bank digital currencies (CBDC) such as China’s digital yuan, has forced the Bank of Canada to accelerate its plan to explore developing a digital loonie. Governments around the world are now engaged in a global contest to digitize their currencies, and this is becoming the most disruptive force in finance and potentially geopolitics. The digitization of money could create an opportunity for a new benchmark currency. Will China outinnovate the United States in the race to become the dominant global digital reserve currency? Or will it be Big Tech player such as Facebook? Whoever emerges the victor from the coming money revolution will wield one of the most powerful and truly global tools in human history. Money will be smart and designed to do https://www.theglobeandmail.com/business/article-the-digital-currency-revolution-may-usurp-analog-money/ 2/15 6/5/2021 The future of money: The digital currency revolution is here, and may sweep away 5,000 years of monetary history - The Globe and Mail what its backers want, which promises efficiency and peril in equal measure. All of this has served as a call to action for the Bank of Canada. For nearly 10 years, the central bank has been quietly developing a contingency plan for the day the future arrives. In March of 2020, the bank put out a call to action to Canada’s universities to help develop a CBDC. It sought proposals for a digital loonie from the brightest minds in finance and computer science to help accelerate the plan for a central bank digital currency in what it called the Model X Challenge. Those experts are saying that the future is now — and many worry that Canada and other countries are already running late. Model X – Designing the future of money In Canada, less than 5 per cent of what we think of as money is physical cash. The rest exists as commercial bank deposits, not in vaults in the back of a building, but merely data points on spreadsheets and other records, tracking millions of agreements and transactions with people, businesses and other banks and institutions. Cash has been in declining use for years, outdone by the clinical power of swipe, chip and tap cards, and the convenience of e-transfers. The pandemic has hastened the functional demise of cash by two to three years, according to Andreas Veneris, a Connaught Scholar and professor of electrical and computer engineering at the University of Toronto who researches cryptofinance. In February, 2021, the Bank of Canada announced three teams it asked to submit detailed proposals for its Model X Challenge to help shape the design, technology and vision for a digital loonie. Prof. Veneris and his colleagues are one of three winning teams of researchers. The other two are from the University of Calgary and McGill University. Model X’s call for proposals was purposefully vague, according to those who participated, but one detail was made clear throughout the process: The bank does not want to leave it to outside actors to determine the fate of the loonie. “They seem to want something down the hall, part of the bank, legally,” says Poonam Puri, a law professor at York University and a member of the U of T-York team along with Prof. Veneris, Prof. Fan Long of the computer science department and Andreas Park, a finance https://www.theglobeandmail.com/business/article-the-digital-currency-revolution-may-usurp-analog-money/ 3/15 6/5/2021 The future of money: The digital currency revolution is here, and may sweep away 5,000 years of monetary history - The Globe and Mail researcher at U of T’s Rotman School of Management. “The Bank of Canada wants to have a direct relationship with all of us, through an e-wallet.” The bank has long held that while it explores a central bank digital currency, there remains “no compelling case” to issue one at this time. Even so, its leaders now acknowledge the rapid pace of global change signals the inevitability of a digital loonie. The Manhattan Project - How crypto made analog cash obsolete Representations of the virtual currency Bitcoin stand on a motherboard on May 20, 2021. DADO RUVIC/REUTERS Bitcoin was invented in 2008 by an unknown person or group using the pseudonym Satoshi Nakamoto, and came into use in 2009. For the first couple of years, it was basically a plaything of libertarian-leaning software nerds, but soon caught on. The first known purchase with bitcoin took place in May, 2010, when a programmer in Florida jokingly paid a stranger in the U.K. to order him two pizzas from a local Papa John’s for 10,000 https://www.theglobeandmail.com/business/article-the-digital-currency-revolution-may-usurp-analog-money/ 4/15 6/5/2021 The future of money: The digital currency revolution is here, and may sweep away 5,000 years of monetary history - The Globe and Mail BTC, then worth about $60. (At this week’s rates, those pizzas cost roughly $477-million). Before it became a speculative boon seemingly out of thin air, bitcoin survived its beta stage because it could do things that fiat money and the global banking system could not. Instant and direct cross-border payments didn’t require a costly intermediary or that you trust the person on the other end of the exchange. Just like those giant rai stones, there was no need for an intermediary. Bitcoin is built on a blockchain, which is conceptually the same as the Yap islander oral history. Each computer in a blockchain network, called a node, holds a copy of the entire history of every coin and each transaction conducted with it, called a block, and does the work of executing new transactions. The Yap islanders didn’t require a trusted third party, such as a bank, to maintain one true copy of the oral history – and, of course, charge fees for storing it, accessing it and updating it. Until 2009, the ease of a dedicated bank made a lot of sense in a world dependent on an analog approach to payments and finance. Bitcoin upended that assumption with one pizza order. “It was the Manhattan Project of money,” says Campbell Harvey, a Canadian economist at North Carolina’s Duke University who is an expert in how cryptocurrency technologies are decentralizing finance. “Bitcoin is really elegant. It was not done by finance people, who tend to be stuck in the past. This is not a renovation, it is a rebuild. And it’s very exciting.” But bitcoin is limited in what it can do. And because it has become an enormously volatile and valuable speculative asset. While all currencies experience minor ups and downs in their worth, bitcoin can gain or lose thousands of dollars in value in a single day. Using bitcoin to, say, pay for a pizza feels more like a game of roulette than a simple transaction.
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